Hidden Drivers of Success
Leveraging Employeee Insights for Strategic Advantage
By William Schiemann, Jerry H. Seibert, Brian S. Morgan
Society For Human Resource Management Copyright © 2013 Metrus Group, Inc.
All rights reserved.
The Information Gap
"It was the best of times, it was the worst of times ... it was the spring of hope, it was the winter of despair ..."
— Charles Dickens, A Tale of Two Cities
A Tale of Two Rentals
A few years ago, one of our authors (Schiemann) lost his wallet en route to a small Midwestern airport late one evening. As he headed from the terminal to the rental car agency, he had a queasy feeling, knowing he would have to explain his loss of identity to the service representative. But as a road warrior for many years, he had duplicate photo identification and another credit card tucked away in his suitcase, and besides, he was an "elite" renter.
He approached Cindi and Kim, the reps for the rental car agency, as they packed up for the night, knowing they had just one last reservation to deal with. Then came the dreaded question from Kim, "May I see your license please?" When our intrepid traveler pulled out his emergency backup, which incidentally had recently expired, she proffered the dreaded smirk and said, "You can't expect to rent a car here with an expired license."
After explaining the situation, the elite status, and the fact that he had rented about 25 times from the company that year, the deer-in-the-headlights look appeared as she slowly repeated, "Sir, you can't expect to rent a car here with an expired license."
At this stage, the road warrior moved on to Plan B, offering a few easy solutions. "How about looking me up in the computer?" After all, he had just rented one of their cars a few days ago. No dice. Apparently the computer system — or at least the operator — did not work that way.
Now our traveler was in Code Red — with no wallet and no cash, a taxi was not an option. On a last-ditch long shot, he asked to speak to the supervisor. The two quickly exchanged nervous glances, "No, we can't call her at home."
Our desperate traveler, on a tip from an airport manager, then tried a run at another rental car cube. Alex and Anthony gave him a different reception. After the traveler revealed his plight, these two superheroes went into action. They immediately logged in to their computer and identified his prior rental from many months earlier and then woke their manager at home to obtain special permission. Even when his emergency credit card came up "expired," they agreed to speak with the traveler's wife, by phone, who dictated another credit card number. By now, it was nearly 11:30 p.m. All the other cubicles were deserted, but Alex and Anthony had him driving out of the airport, despite all the setbacks.
What caused these two different experiences? Why did one team seem more interested in going home, whereas the other was inspired to extraordinary discretionary effort? If you were the CEO of the first company, how would you feel knowing your team risked the loss of a 30-year, loyal customer, especially when your competitor next door got the job done? Would you have wondered how many of your other employees are truly aligned with your values, brand, and strategy? Or were they indeed aligned with a culture that values no risk taking and has policies intended to avoid individual variation?
We experience these paradoxical service situations every day. And the impact of outcomes such as this are multiplied daily as customers tweet and post on Facebook. We start with this anecdote because it is fundamental to the story of success and failure in the new marketplace. It also raises the role of measurement, especially as it relates to human capital and other intangibles. Departing customers and their wallet share are measures that may indicate how good our strategy is and how well it has been implemented. Sadly, by the time these measures are noticed, analyzed, and reported, it is often late in the game. Reclaiming lost loyalties takes many years. Earlier indicators gathered through the eyes of employees or other sources are needed to identify gaps and to serve as early warning predictors of future customer or operational problems.
The rental car example is more than a story of great vs. poor service. It captures many of the key differentiators between successful and unsuccessful businesses today. Cindi and Kim may not have been highly engaged, or the capabilities simply were not there: training may have been inadequate, policies inflexible, and computer systems antiquated. Or possibly the company would have wanted them to bend the rules, but they did not understand or were not aligned with the values.
This book discusses a variety of ways in which measurement can be used more strategically and more decisively to gain competitive advantage — or for not-for-profits or government agencies, it is about reaching goals or achieving objectives more effectively and with less waste and frustration.
CEOs tell us they are urgently searching for answers to several core questions:
Do we have a winning business strategy, and is it working?
What do our customers think, want, or need?
Are we effectively managing our risks?
Do we have the right talent, and are we utilizing it well to execute the business strategy, to meet customer expectations, and to anticipate future customer needs or desires?
We have found that if we focus on these strategic questions first and deploy the right measurement systems to capture these core issues, other tactical decisions and measures will flow naturally from the answers. For example, focusing on these questions then leads us to important measurement decisions regarding internal functional alignment, supply chain management, labor relations, productivity, retention of top performers, talent acquisition enhancements, and a variety of other meaningful issues.
Is Your Strategy Working?
Strategies fail for usually one of two reasons: the wrong strategy or poor execution. How do we know if our strategy is a good one or that we are executing it well? Strategy is about providing certain products or services to targeted customers based on a set of core capabilities in the context of a vision and mission. The trick of course is identifying the right products or services, focusing appropriately on the right customers, and developing and utilizing these capabilities better than our competitors. The right measures will provide feedback on whether the strategy is a good one and how well we are executing it. Throughout this book, we will answer these essential questions, but to determine what we should be measuring, we first need to consider the strategic framework.
Framework for Making Strategic Decisions
Before discussing how you can become more effective in using measurement to reach your objectives, let us take a look at how measurement can play an integrative role in connecting strategy, customers, and the drivers of success for any business, regardless of size, region, or industry.
Figure 1.1 is a useful framework for thinking about how value is typically created in organizations and how the many stakeholders can make or break the success of an organization. Shareholder equity (or owner profit or "mission accomplished" for nonprofits or government agencies) is enhanced primarily by delivering products and services that have perceived value to customers or users in markets you have targeted. The ability to create those products and services is driven by effectively managing people, suppliers, and environmental constituents. We define the latter to include communities in which organizations operate, environmental stakeholders such as green or health and safety groups, and finally regulatory or other groups of influence such as unions.
This model allows for the varying strategic needs of different organizations. Rental car agencies, for example, must have their people — employees, contractors, managers — aligned with end stakeholders. Their suppliers range from tiny local repair operations to behemoths such as GM or Toyota that must support their strategy. And influential groups such as unions, airport authorities, or Consumers Union (the publisher of Consumer Reports) may influence their ability to deliver their products and services effectively.
If you work for a small organization, the same factors must be managed, albeit on a different scale. Your local auto repair shop owner, for example, has primary stakeholders, such as the owner's family, his customers, his employees, and the suppliers who get his parts delivered to meet customer promises. And periodically he must also deal with the township regulatory boards related to zoning issues or other community requirements. He must also comply with EPA and other federal regulations.
Consider some key stakeholders.
Customers can tell us a great deal about how the strategy works for them if we ask the right questions in the right way at the right time. They can tell us if they find our products valuable or competitive, provide ideas for what would enhance our value, or telegraph that our value proposition is fading. They can also tell us about execution. In the rental car example, if our co-author had been sent a follow-up questionnaire from the first agency after his experience at the regional airport, he could have reported on a range of areas, including computer glitches, employee attitude, employee competencies in observable areas, and adherence to hours of operation.
However, an often missed opportunity for firms is information from customers who walked away from a reservation and used a competitor. The renter did not show up in the customer transaction system that evening because he went to a competitor. Customers at a quick- serve restaurant who leave because of some problem before receiving the magic receipt that announces that they have been chosen for a service survey, or the potential customer who gives up during step 16 of a phone tree, are also among what we might call "invisible stakeholders."
Internal and External Suppliers
Internal functions. According to work that the Metrus Institute has done in conjunction with Quality Progress, the publication of the American Society for Quality, alignment and coordination of internal functions represent major gaps in many organizations. As any sales professional or customer service representative will tell you, his or her interaction with the customer will only be as successful as the suppliers that support them. Customers do not care about how the product or service reaches them — just that it does at the right time and at the right price.
Functional excellence and internal value delivery are two of the most under-measured areas. Some firms talk about a spirit of cooperation across all units — others about accountability for deliverables — but neither guarantees that high value is being created. Firms live or die in short order by whether the end customer sees high value, but they often miss the opportunity to deliver that value at lower cost.
Our research shows that firms and their functions vary widely in creating value, which we will discuss in more depth in Chapter 3. Those that excel at internal value creation have a competitive advantage in terms of employee retention, quality, customer loyalty, and financial performance. An organization's ability to deliver the value proposition to the customer and to fulfill the brand promise is only as strong as the weakest link in the value chain, including the many internal service functions that add or subtract value. By the time low value has been "felt" by the C-suite or other top managers, the function is often on the way to being outsourced.
Internal service metrics can be invaluable in helping to pinpoint the extent to which various functions within the organization are streamlined and synchronized. Are we producing great services, but perhaps at much higher costs than needed? Do functions cooperate with each other in effective ways to achieve end results, or is the organization riddled with silos that impede overall performance?
External suppliers. Measurement of supplier performance, either directly or through the eyes of employees, is often neglected. When a large pharmaceutical organization outsourced many of its clinical studies and large chunks of its clerical staff, it experienced a measurable shift in performance compared to when on-staff employees delivered those services. Many former on-staff employees became newly minted "supplier employees." They continued to work in the same location as before but received their paycheck from a different employer.
Now here is the interesting part. This pharmaceutical company suddenly stopped measuring the alignment, competency growth, and engagement of the employees who were no longer on payroll. The "burden" of the employees shifted to the supplier, and the process of measurement was shifted along with it. However, when clerical turnover started to increase, and employees no longer seemed to put in the extra effort, the pharmaceutical company was disappointed. Clearly, it had made these outsourcing decisions based on cost and perhaps risk mitigation, but the company lost its ability to predict and manage talent outcomes such as turnover or discretionary effort that was central to delivering quality results. The lesson here is that outsourced labor also need to be aligned, capable, and engaged.
Another missed opportunity is to ask employees about supplier issues. One pharmaceutical company we work with asked its employees questions about suppliers on its employee survey. For example, do employees think that the company allows suppliers an opportunity to make a fair profit? Obtaining the supplier's opinion would also be beneficial, but this is one more step to corroborate whether the firm's policies and actions support its values. We will address internal function and supplier issues, and their relationship to customers, in Section II.
A variety of other stakeholders we call environmental constituents often play a role in organizational success. Among these may be the city council or mayor's office, safety regulators, green environmental groups, unions, consumers groups, and regulatory groups such as drug approval boards. Here, too, employees can tell us much about community relations, labor relations, regulatory risk, environmental challenges or successes, volunteerism, and much more. We will address some of the interesting challenges in managing and measuring areas such as sustainability and labor-management relations in Section VI.
People are the channel that connects operational systems, suppliers, and the broad environment stakeholders. We use the term "people" here rather than "employees" because most large organizations now use a variety of sources of labor in addition to employees alone: contractors, part-timers, consultants, outsourced or off-shored labor suppliers, and other variations. What is common across all these groups is talent. The organization needs a pool of people who contribute a certain talent package that can be applied — with technology, materials, or processes — to provide products and services that customers want.
Optimizing talent is the central challenge and key differentiator for most organizations. In this increasingly global marketplace, most organizations can access capital, materials, technology, or even world-class processes, but the people and their talent are what make two seemingly similar organizations perform differently. Talent determines whether the organization is innovative, efficient, productive, stable, ethical — ultimately, whether the organization will remain healthy and viable in today's and tomorrow's marketplace.
People also have a tremendous window on your customers. For example, sales and service employees have firsthand information about customers that can provide invaluable knowledge about market risks, customer expectations and levels of satisfaction, buying behaviors, areas of frustration, gaps in the product/service value offering, and numerous other issues.
Sales and service employees are not the only ones in an organization with a window on customers. Financial people often see other patterns, such as payment schedules (including risky late payers), credit worthiness, and the adequacy of financial information for customers. The IT department sees Web patterns. Manufacturing may understand back-order and delivery needs. And so forth. Put together, the data provide the organization with a fuller understanding of the customer, but each function within the organization must share and coordinate the information. In total, the data provide deeper insights; in fragments, they may send decisions down the wrong path.
Employees too can report on both the strategy and strategy execution. For example, the employees in our regional airport example have viewpoints about the company strategy, the alignment of their work with the group or company goals, the sufficiency of information or resources to do their job, the effectiveness of customer policies, and the clarity of communications. (Continues...)
Excerpted from Hidden Drivers of Success by William Schiemann, Jerry H. Seibert, Brian S. Morgan. Copyright © 2013 Metrus Group, Inc.. Excerpted by permission of Society For Human Resource Management.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.